Court of Justice of the European Union Rules Arbitration Clause in BIT is Invalid (March 6, 2018)

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Court of Justice of the European Union Rules Arbitration Clause in BIT is Invalid (March 6, 2018)

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By: Caitlin Behles | March 9, 2018 - 4:46pm

On March 6, 2018, the Court of Justice of the European Union ruled in Slowakische Republik v. Achmea BV that an arbitration clause in a bilateral investment treaty (BIT) between the Netherlands and Slovakia violated European Union law. The case concerned arbitration proceedings between Achmea, a Netherlands insurance group that initiated the proceedings, and Slovakia, which had prohibited the type of insurance services that Achmea undertook to provide in Slovakia and later argued that the arbitration clause was in violation of several provisions of the Treaty on the Functioning of the European Union. As noted in the press release, the case was followed closely in the EU, and the Court received observations supporting Slovakia’s position from the Czech Republic, Estonia, Greece, Spain, Italy, Cyprus, Latvia, Hungary, Poland, Romania, and the European Commission. Germany, France, the Netherlands, Austria, and Finland argued that the clause was valid and that similar clauses common to the 196 BITs in use by EU member states are consequently also lawful. The Court noted that the arbitral tribunal at issue may be required to interpret and rule on EU law, but that it doesn’t form part of the judicial system of either Slovakia or the Netherlands and so cannot make a reference to the Court for a preliminary ruling. The Court consequently found that the clause created a dispute-settlement mechanism potentially outside the judicial system of the EU and stated that a court within the EU system is the only type able to ensure the effectiveness of EU law. Under such circumstances, the Court held that “the arbitration clause in the BIT has an adverse effect on the autonomy of EU law, and is therefore incompatible with EU law.”